Whither India’s demographic dividend?

Most must have read this superb piece from Arvind Subramaniam. He points to some initial results from his ongoing research on Indian economy.

• First growth in states has been double in 2001-09 compared to 1990s.Barring HP and Rajasthan, all states show higher growth
• However divergences in growth patterns continue. Inequality between laggard and frontrunner states remains and inequality has actually increased.
• Interestinlgy globalization has caught up with states as well. In this crisis, Maharashtra, Karnataka etc were impacted more than say Bihar and Gujarat. Globalisation works both ways…
• Finally, to the topic of the post. He says states with better demographics and having younger population (like Bihar, UP etc) fared worse than older states of Karnataka, Maharashtra etc.  He says:

 Hope in India’s future growth is founded on the demographic dividend: a rapidly expanding young population will save more and inject entrepreneurial vigor that will lift the country to a faster growth trajectory. And corroborative evidence was provided in an excellent recent paper by Shekhar Aiyar and Ashoka Mody of the International Monetary Fund. But the pattern of growth in the 2000s appears to muddy the waters. Our preliminary analysis, based on the 2001 Census projections rather than actual data from the 2011 Census, suggests that key demographic factors such as changes in the share of working-age population are not correlated—they may indeed be negatively correlated—with growth performance. This may not be surprising given that many of the demographically aging states such as Kerala, Tamil Nadu, and, to a lesser extent, Maharashtra and Gujarat have done remarkably well while demographically dynamic states such as Uttar Pradesh, Rajasthan and Madhya Pradesh have not fared as well. The preliminary nature of these results must be stressed, but succumbing to a demography-based complacency must be resisted.

Shankar Acharya said the same thing in a 2004 paper. He said demographic dividend is questionable as laggard states have higher fertility rates. So not much has changed. I wrote the post in 2007 (just started blogging then) and seems so relevant even now.

This demographic dividend thing has been overblown. It is like you assume if there is demand and supply markets would  be efficient. So as India has favorable demographics, it will grow. Well, like to markets efficient you need many things (infrastructure, institutions, law etc) you need the same for demographics as well – education, healthcare etc. The moment you look at these, you know we actually could be in for demographic discount.

He also points to some interesting aspects of communist regimes in two states – West Bengal and Kerala.

The figure provides a clue both to the long-standing success of the Communist party in West Bengal and its overthrow in the recent elections: West Bengal was one of the strongest performers in the 1990s but was one of the few states that stagnated in the 2000s while others surged.

A final intriguing factoid relates to Kerala. The conventional wisdom is of a state that is Scandinavian in its social achievements but sclerotic in its growth performance because of investment-chilling labor laws and militant trade unions, and reflected in a labor force that has voted with its feet by emigrating to West Asia. The abiding caricature is of the lazy, argumentative Malayali, discussing Foucault and Gramsci over endless cups of chai while living parasitically off the remittances sent by the relatives-in-exile. Well, the data suggest that the conventional wisdom and the caricature are dead wrong. Kerala posted amongst the highest rates of growth in the 1990s (4 percent per capita), continued its stellar performance in the go-go 2000s (7.5 percent), and exhibited great resilience during the crisis, experiencing virtually no decline in growth.

Well…what can one say to this?

Previous post along with this article gives a nice glimpse into India’s states economic performance.

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Manufacturing vs Services

There is an interesting debate on the topic between Jagdish Bhagwati and Ha Joon Chang. Patrick Lane of economist moderates the debate.

Ha Joon Chang says manufacturing is very important and Bhagwati disagrees. Lane sums up the debate points:

What has RBI/India learnt from the financial crisis?

RBi Governor, Dr. Duvvuri Subbarao gives a nice speech on the topic.

Most of the lessons he has spoken on before as well.This one just summarizes the broad ideas emerging so far. People can use it for their PPTs/research on the same topic.

Lessons are:

Participate in essay competition by Indian Economic Services

Indian Economic Services (IES) is celebrating its Golden Jubilee this year. So it has organised an essay competition for students in India.

Topic is pretty interesting: “Abundant Foodgrain Stocks, Ample Foreign Exchange Reserves and Poverty: Addressing the Challenges of India’s Development Story”

It somewhat sums up the situation and irony of Indian economy as of now.

IES would a publication of its completion of fifty years. Then there will be a lecture series by prominent Indian economists and policymakers. They would also launch a website which will explain economic concepts from Indian context. The proposal also says website will have “A Statcounter for counting the number of hits per day”.

 

Some interesting literature expected to follow…

Will China Ever Become as Rich as the U.S.?

Mark Wynne of Dallas Fed has a nice crystal ball gazing paper by the same title.

He analyses which countries have managed to reach per capita income levels of US and whether China can make it:

Comparing India’s states with different countries

Economist has this amazing analysis which replaces India’s states and Union Territories with different countries on 3 parameters – GDP, GDP/capita and Population (HT: PB, a reader of the blog).  The figures need to be updated as we have census figures for 2011. But I doubt there would be any major changes from the 2008 list.

Ireland T-shirt message – “We are not Greece”

Along with Greece Irish bonds premium to German bunds keeps rising as well.

Ireland FM apparently has remarked that he plans to print T-shirts with the message – “We are not Greece”. Irish earlier said they are not Iceland but fell in  big hole later. (HT Eurointelligence)

The Irish finance minister Michael Noonan said he  is considering ordering t-shirts with “Ireland is not Greece” printed on them. “We won’t give them away, we’ll sell them,” Noonan told reporters. The Irish Independent considered it a joke, while Bloomberg writes that Ireland now emphasises its differences from Greece after having spent the early part of the financial crisis trying to distance itself from Iceland.

Sell them sir..may be it helps make some money.

Barring that people will continue to associate Ireland with Greece. Ireland sais this earlier as well but had to be bailed out…Credibility of these govts is at all time low and will take a while to sort out..

How India managed its 1991 financial crisis

This is a superb paper from Arunabah Ghosh  on India’s 1991 crisis. ‘

India survived near-crisis situations twice in the 1990s. How did internal and external constraints shape that country’s ability to respond to the crises? This article argues that India’s success can be attributed to four sets of decisions taken during the period 1991–1997: devaluation, involvement of the IMF, partial liberalization of the domestic financial sector, and gradual opening up of the external sector. The article analyzes the options, political opposition, and eventual outcomes for each set of decisions. India’s ownership of its reform program helped set the pace of reform, while close interaction between technocrats and the IMF added credibility. But the balance between entrenched traditional interest groups and the demands of new interests determined the scope of reform.

Read the whole thing…pretty interesting details on the 1991 crisis…

Political economy of India’s reforms

Here is a superb lecture by Arun Shorie on the topic. He discusses how India is facing a major gover hanance challenge and how the current govt. is doing nothing about it. He adds nicely that just having the right team/people is not enough to do reforms. You need will and courage to do reforms.

Credit rating agencies and Greece

Blogging is going to be more like tweeting now…

Here is a nice paper by ECB economists on the hot topic of Greece’s relations with the Credit rating agencies. The problem is not of Greece alone but CRAs as well who cant assess the situation even one month before the event..

 

We use EU sovereign bond yield and CDS spreads daily data to carry out an event study analysis on the reaction of government yield spreads before and after announcements from rating agencies (Standard & Poor’s, Moody’s, Fitch). Our results show: significant responses of government bond yield spreads to changes in rating notations and outlook, particularly in the case of negative announcements; announcements are not anticipated at 1-2 months horizon but there is bi-directional causality between ratings and spreads within 1-2 weeks; spillover effects especially from lower rated countries to higher rated countries; and persistence effects for recently downgraded countries.

Blogging is going to be very weak

I hate to post this but have no choice. I am travelling extensively and would not be blogging very frequently for the next 20-25 days.

But keep flowing your comments and any interesting articles/links…

Berluconi asks Bini-Smaghi to resign

Eurointelligence’s superb daily edition (has been made paid version now) has this superb story:

As we know Mario Draghi is slated to be the next chief of ECB. Here is his statement to European Parliament expressing why he is a suitable caanidiate for the position.

This would imply two Italians on ECB executive Board – Draghi and Bini Smaghi. This is a strict no-no:

It is going to be interesting how they are going to resolve the dilemma of the two Italians in the ECB. The French have said they would not support Mario Draghi unless Lorenzo Bini-Smaghi were to step down. Silvio Berlusconi yesterday had a meeting with Bini-Smaghi, after which he released a statement requesting Bini-Smaghi’s resignation from the board of the ECB “while fully respecting the independence of the European Central Bank”. When Bini-Smaghi left Palazzo Chigi he had no comment. Corriere della Sera has all the details.

As per Corriere della Sera, may by Bini Smaghi is given the chief of the Central Bank role as part of the exchange.

Impose public ownership to reduce corruption??

A superb interview of Ed Glaesar. Truly, urban economics would have been into its old age without him. Thanks to him it is still youthful and actually getting younger by the day.

Glaesar points to five books on urban development/cities one should read.

• Nature’s Metropolis By William Cronon
• Plunkitt of Tammany Hall By William L Riordon
• The Philadelphia Negro By W E B DuBois
• The Urban Transportation Problem By John Robert Meyer, John Kain and Martin Wohl
• The Death and Life of Great American Cities By Jane Jacobs

Lessons from M-banking

V. Kasturi Rangan of HBS explains the case study in which he compares the lessons learnt from Mobile banking in two different countries. Moreover, companies structures  are also different.

The Harvard Business School case study Mobile Banking for the Unbanked explores two very different examples of mobile financial service models:WIZZIT, a third-party startup that teamed with a major bank to provide standard banking services via mobile access to impoverished residents of South Africa; and M-PESA, an initiative launched by the mobile network operator Safaricom (in conjunction with Vodafone) to offer a new type of financial service to the poor residents of Kenya.

Ultimately, the more successful of the two, M-PESA, realized that the intended customers didn’t really want bank accounts at all—they wanted effective ways to send money home to their families.

The case’s key lesson is the importance of meeting the real needs of your target audience, not the needs as you perceive them, says professor Kash Rangan, who authored the case with research associate Katharine Lee and teaches it in his second-year elective course Business at the Base of the Pyramid.

The mistake a lot of us make is to look at the folks at the base of the pyramid and assume that they must need the same types of services we need,” Rangan says. “Everybody needs food. We need education, and so do the poor. We need banks, so they must need banks. But that’s the wrong way of approaching it. The ecosystem in which they live is very different from ours. They’re on weekly or even daily wages, and their family circumstances are different. So we’ve really got to dig in and figure out what their real needs are and their pain points.”

Read the piece for more details

Central Bank of Greece worried over Climate Change in Greece…

I found this a little amusing really. Given the situation Greece is in, one would least imagine its central bank releasing a report on climate change in Greece.

In 2009, Greece Central Bank funded a report   assessing the damages of climate change in Greece. The report was released (cannot find a copy). Bank chief George A. Provopoulos says:

What Are Economic Models?

Sam Ouliaris of IMF has this nice description of the enigma of economics — its models.

The idea behind model ironically is to simplify economics:

Profile of George Akerlof

Prakash Loungani of IMF profiles George Akerlof, one of the most brilliant minds ever.

What strikes you in the profile (and most of Akerlof’s work) is his focus on unemployment. It is like his lemon/ information asymmetry papers are just part of some random thoughts which econs keep getting from time to time:

Developing a Business Conditions Index for Indian economy

For the technically gifted, here is a nice paper from RBI economists – Dipankar Biswas, Nivedita Banerjee and Abhiman Das.

Business Conditions Index is a composite indicator which helps track the business cycle real-time. It combines economic variables to generate an index which tell you whether economy is doing good or bad.

It gives a framework to develop a business conditions index for India On the lines of  Aruoba-Diebold-Scotti Business Conditions Index for US economy.

The authors show their business conditions index tracks Indian business cycle quite well.

Teaching trading carbon credits in classroom

HBD Prof. Peter Coles, a market design expert is imparting what is called as 21st century skill – teaching how to trade carbon credits.

The basic concept is straightforward enough: A cap is set on carbon emissions. Companies can then buy and sell a limited number of emission permits, which allows them flexibility in their pollution levels, and at the same time creates a market price for carbon pollution. But how well does the system function when it’s implemented in the real world?

Nudging to save water and minimise trash

On a vist to US embassy in Mumbai, I noted an amazing nudge.

In the embassy, all paper cups for drinking water are cone shaped which looked unusual from the moment you saw it. And this is common across most consulate offices in Mumbai.